$3.8 bn Canadian loan for auto giant Chrysler

Toronto, May 1 (IANS) Canada will loan $3.8 billion to Chrysler in return for a two percent stake and a say in management as the troubled auto giant undertakes restructuring to survive. The governments of Canada and Ontario province - where most auto plants exist - will jointly pick up the tab, Prime Minister Stephen Harper announced here Thursday.

The Canadian announcement coincided with the bankruptcy filing by Chrysler’s parent company in the US as the Obama administration’s unveiled a $12.8 billion package for the auto sector Thursday.

Chrysler filed for Chapter 11 protection in New York after reaching a partnership deal with Fiat SPA.

Apart from yielding two percent stake to the two governments, Chrysler Canada will also give one seat to them on its nine-member board and pledge to maintain 20 percent of its total production from Canada.

Thursday’s announcements in Washington and here are part of a $15 billion bailout by the US and Canada to revive the sinking auto industry.

Since Canadian plants of the three auto giants account for about 20 percent of their overall production, the Canadian package of $3.8 billion is proportional to the $12.08 billion announced by the Obama administration.

Harper said Canada was left with no option but to participate in the restructuring of the auto sector once the US government under George Bush got involved in this process.

“Otherwise, through a politically directed restructuring in the United States, we would stand a serious risk of the complete restructuring of the industry outside of this country,” the Canadian prime minister said.

Outlining the stringent conditions for the loans, Harper said that if Chrysler fell below them, it will be considered to have defaulted on the loans and the government could seek repayment.

“Let not anyone suggest that the money we are giving today is a gift,” the prime minister said.

Chrysler will pay an interest rate of seven percent on the loans to be repaid over eight years.

The loan package includes an existing interim loan of $1.21 billion, a short-term working capital loan and a medium-term restructuring loan for Chrysler’s Canadian operations.